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Where Ego Dares #8: Position Size

Last time I talked about tilting and its severe effect on our trading mind.  While being wrong can stir our sensitive ego into an excited mode; there is nothing more inciting to tilting than a position size that is larger than you can handle.

And I’m not talking about the size of your wallet.  Sure, you can have a huge wallet but your mind may not be able to handle the psychological effect of the losses due to your position being too large.  What most people forget is that the size, like leverage, cut both way.

With a position size larger than you can handle, a small negative turn of the stock can appear to be quite large and uncomfortable to you in term of the losses or profit give-back you are witnessing.  Sure, it all looks good when the stock is heading in your favor; who doesn’t like to see the profit multiply in spade?  But the moment price action turns the wrong way and you don’t act fast enough, you will not only give back your profit, you will lose more than you are prepared for if you don’t have a hard stop to protect yourself.

The problem here is that the moment your trade has done well on the get go; most people cannot handle the give-back of the profit when the stock corrects.  They are seeing green, why should they close out their position to cut losses or break even when there is still possibility of green later on?

Mentally, it is much harder to take a small losses when you have already seen paper profit earlier.  There are two things working against you:

  1. You regret not taking your profit when you think you should
  2. You don’t like to take losses in such large amount (due to your over-sizing position) even though the stock only corrects within the daily ATR (average true range).

The first item is usually the most common and the remorse can be quite debilitating to your mental stage; sometimes to the point of impairing your normal trading process.

The second item above compounds to your mental stage from the remorse and may push you to tilting if you do not act to stop the bleeding when price continues to go against your position.

Over-sizing in your position can blind you to the true direction of the price-action.  By being more fearful when you normally would not when you are holding a normal size position, your emotion causes you to lose the objective observation of the price action.  You start to see thing that isn’t there.

From my experience on the SP500 trade I discussed last time, when I saw the losses that was six times more than my morning win, I couldn’t handle that sudden turn of event so I tried to double-down to make it right.  The interesting thing was that, hindsightwise, I was correct all along in the overall direction of the SP500 trade.  I was just wrong on the extent of the retracement.  If I had given my position more “room” to breath with a 2% maximum stop loss from my original size, I would have made a killing by the end of the day.  But my doubling down after seeing my third trade turned into a losses exceeded my comfort zone in the position size department, I lost my objective perspective of the price action.  Not only did I lost perspective, I lost my ability to apply money management by cutting my losses before it got me to tilt.  If I had just walked away from the losses even though it was six times my first win, it would still be a manageable losses.  Perhaps a 3% of the portfolio instead of 15% I ended up with.

But it is easy said than done when you see unexpected losses due to fast market or your hesitation to act that are larger than the normal losses you allow yourself.  If you happen to have a large position size when the sudden turn of event happens, you are one step away from tilting.

After I took my volunteered hiatus from trading to find myself, I realized that in order to play this market to win, I need to be honest with my strengths and weaknesses.

I see my strengths as:

  • being quick to act
  • finding stocks that fit my trading style

I see my weaknesses as:

  • susceptible to tilting
  • easily spook

So when I came back to trade, I began to tailor my trading style according to my strengths and weaknesses.  Knowing that I am susceptible to tilting, I swear off averaging down when I’m losing.  Knowing that I’m easily spooked, I will cut my losses quickly by taking advantage of my strength to act quickly.

I also started to build up my tolerance for position size.  In other words, I would start small and then build up the size in incremental level over a period of time so that when I was losing; it would not affect my objective observation.

Remember, position size is a very personal matter so you have to be truthful to yourself.  DO NOT ever compare your position size to anyone else.  What is big to me may be peanut to someone else and vice versa.

You have to find an optimal position size that will allow you to see the truth of the price action even though you are sitting on a loss.  Trust me, in time, your optimal position size will increase as you start to bank coin following your successful trading system.

For those who have been reading my ego series, you know there is a catch.

What is the catch?

Before you even get to the issue of finding your optimal position size for your trade, you need to do the following:

  • master your thought process to develop your trading mind
  • master your focus to help your trading mind overcomes your natural mind
  • master your chart reading skills with the technical tools that fit your trading style
  • understand your strengths and weaknesses so you can form a trading style that increase your ability to trade successfully

Only after you are proficient in the above steps do you even have to worry about your optimal position size.  In the meantime, trade small until you get the hang of it.  Otherwise, you may become another number that support the statistic that only a few percentages of the trader can ever win consistently in the market.

This is my final post on the Where Ego Dares series.

Ain’t you forgetting something?

Oh, you mean how can I forget to talk about greed when we are dealing with the subject of ego?

I’ve already discussed greed in my prior post so it will be redundant if I bring it up here again.  Please click here to re-read it if you want.

Hope you all enjoy it.

My 2 cents.

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Where Ego Dares #7: Beating our own drum

Everyone is different and unique; therefore, everyone thought process is different and unique as well.  We can all agree on the same subject, but how our thought processes arrive at the same conclusion is totally different.  Each one of us will react differently if the agreed subject matter changes its form.

It is my thesis that each of our thought process is an energy with its own unique frequency and wave pattern “fingerprint” so to speak. In other words, we all beat our own drum when it comes to how we think. Not only that our thought process is as unique as fingerprint, our overload level or “tilting point” is unique as well.   When we “tilt”, we arrive at the fight or flight mental stage.  This is the mental stage where our ego will bury us with extreme fear (flight/panic) or extreme bravado (fight).  Neither are productive for our portfolio management.

Our natural mind, or our need to be right, set a ceiling for our frequency range as well as its wave amplitude before we tilt.  As long as we don’t tilt, our natural mind will function like a normal mind that will allow room for our trading mind to take over if we are focused enough .  This normal range is what some people call the “comfort zone”. This is why when we meditate, our mind will be further away from our tilting point. However, the moment we stress ourselves out with thought processes such as fear, worry, greed, etc, we exceed our comfort zone and our natural mind will enter into an extreme mental stage which will put our portfolio into jeopardy.

Now, do you understand why we need to beat our own drum when we trade?

Suppose you follow trader X whose personality, tolerance, and experience provide him/her with a tilting point of 7 on a scale of 10.  Meanwhile, your tilting point based on your personality, tolerance, and experience has a level of 5.

What do you think will happen?

Trader X can hold on his trade against drawdown in a calm manner while you are already tilted over with extreme emotional reaction to the drawdown.  There is no telling what kind of revenge trading you will do to the trade which may cause severe damage to your portfolio.  At the end of the stock run, trader X may walk away from the trade with a nice gain while you may already have suffered severe damage to your portfolio due to your tilting.

I like to mention that success in trading does not depending on how high your titling point is.  In fact, the higher your tilting point, the faster you may lose your money if you don’t apply proper money management.

Tilting is the “out-of-control” stage where your decision making is based on extreme emotional thought process. An important part of being successful in trading is your ability to avoid tilting. You can have a tilting point of 3 and still succeed in trading because you have the awareness to trade only the type of investment vehicles that you know won’t push you into tilt mode.   Or you have the awareness to choose a trading style that will help you avoid the tilting point.

Let me give you an example of tilting from my personal experience.

I started my trading journey trading T-Bond in the futures market. Interest rate was dropping and I bought T-bond futures based on someone recommendation.  I made money on my first trade in the futures market and I was hooked.  Having a commodity broker account, I naturally traded other commodities such as pork belly, sugar, orange juice, cotton, SP500, etc  Because of their high leverage, I daytraded these commodities more than I held them for swing trade.   Due to the short-term nature and my lack of discipline at the time, I had a hard time holding to my profit.  If I made money one day, I would end up giving it back sooner or later.  Of all the trading vehicles in the futures market, the SP500 Index futures was the only one that made me tilt.

I tilted only two times during my few years of trading the SP500 and it was two times too many.  Each time I tilted, I would lose about ten times more than I would normally allow myself to lose in a day.  While the amount I lost during tilting did not destroy my portfolio, it was a 15% loss compared to a 1.5% loss.  After I tilted the first time, I had the good sense to stop trading for a few months to take a break.

The trade would start out with SP500 taking a gap down at open.  I would then wait for the bounce to short.  The bounce came and I shorted.  Bang!  Right on the money!  I took profit and waited for the next bounce.  The bounce came again and I shorted again; only this time, price action continued higher.  Before I knew it, I was stopped out for loss that practically took away my earlier gain.  Seeing that it was a gap down at the open, I decided that price action for the SP500 index would eventually go back down again.  So, I picked the next resistance level to short.  Price went up to my sell stop and I got filled for the short trade.  At first, the trade would drop from the resistance and I won back my original gain on paper.  However, this day was unlike any other day, this day I wanted more.  I wanted a waterfall price action because my ego dictated that the SP500 had to fall further down.  So instead of taking my profit on my the 3rd attempt to short, I waited for the price to break the support and drop like a rock. No! Price action bounced from the support and headed higher.  The paper profit I saw vanished in front of my eyes and now I was seeing red.

I didn’t know it then but I was on the verge of tilting.  I got mad at giving back my paper gain so quickly.  So I decided to average down my losses by shorting more contracts.  Lo and behold, price did not fall.  It kept going up!   Suddenly, I was starring at a loss that was three times the size of my earlier gain.  I got really pissed.  Boom!  I tilted over!

I wanted to turn my loss back to gain as soon as possible.  So I figured if price really wanted to go up.  Fine!  I would then covered my shorts with twice the amount of contracts so I could go long.

OK! SP500, you want to go up!  I’m going up with you!  By this time, I didn’t care about my portfolio anymore, all I cared about was to be right about my trade.

Unfortunately, I reversed to go long right at the top of a giant retracement.  Holy F**K!  I was starring at loss that was now six times the size of my morning gain!  My emotion was going full steam.

No Fu*king way!  You are supposed to go up!

So I averaged down and bought more contracts.  But price kept on going down!

By the times I reached my pain threshold, I suffered a 15% loss on the SP500 trades due to revenge trading from tilting.

The 2nd time I tilted over on my SP500 Index future trades, I stopped trading for almost a year to find myself.

When I was ready to trade again, I chose stock trading instead.  It all started because my full service Merrill Lynch broker would recommend a stock and proceeded to lose money for me.  Yes, that was before Merrill Lynch went under and became part of Bank of America.  After multiple times of losing, I decided that I could do better using whatever skills I learned from commodity trading to apply to the stock market.  Lo and behold, probably due to the low leverage in stock trading compared to the high leverage in commodity, I have not experienced tilting ever since.

Now that I’m trading strictly on cash with no margin and with my commitment to avoid averaging down while losing, my odd of tilting is practically zero.  Oh yeah, cutting losses quickly play an important part as well.

The point I’m making is that you have to find your own tilt level and then beat your own drum underneath it .  You need to know how you can trade without tilting.  If you want to pick someone else stock pick, by all mean, but use your own trading style to execute the trade.  Otherwise, you are in danger of tilting.

Don’t worry about how other traders are doing with their multiple stock picks; just focus on the picks that you like.  Just because other traders make money with the picks you shy away doesn’t mean you miss your chance.  You may suffer tilting from other traders’ pick simply because the stocks are not right for your trading style. You must find the picks that you feel are aligning to the rhythm of your own drum beating.

Sometimes you may not have done the revenge trading like I had done with the SP500; but if you are sitting on a losing trade that make you nervous everyday, you may have already been tilted especially when you are asking everyone what you should do with the trade.  When you have to ask someone what to do with your trade, you are no longer beating your own drum.

You must take the time to find your own drum (the right market or the right stocks to trade) and the rhythm (trading style) to beat.  It will take some trials and errors before you find yourself.

To find yourself, you need to understand yourself.  To understand yourself, you need to look within yourself and be honest about your strengths and weaknesses.

And yes, I’ve never said beating your own drum is a walk in the park.  But to have a chance to win in this game, it pays that you learn how to beat your own drum pronto!

My 2 cents.

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Where ego dares #5: Intensity

Last time, I talked about bringing intensity to the thought process in order to amplify the mind power.  While this is simple to understand in theory, it is going to take a lot more to pull intensity out of thin air to power your thought process.  In my Grand Canyon trip, it was a matter of survival; therefore, my will to survive bring forth the intensity I needed to push myself onward.  Without the will, I would just lie down and give up.

As a trader, how do we bring forth our will to raise intensity to our thought process so we can follow through with the proper trading process to succeed in trading?

Before I go on, I like to remind everyone that intensity in thought process is a double-edge sword.  If the intensity lies on good intention with a positive thought process, you can create wonderful things; on the other hands, it can bring darkness to your life that are filled with sadness, sickness, and destruction (of self and other) if the intensity lies on bad intention with a negative outlook of life.

We already know how to bring forth intensity automatically by getting emotional about things or events.  If we are happy, our day lightens up more than normal; that is intensity.  If you encounter a bad news that affects you deeply, your day is filled with sorrow, sadness, and anger; that is intensity.

Ok I get it.  So how do we summon intensity to help our trading mind without getting emotional about things.  As you’ve already told us zillion of times, emotion is bad for trading!

Knowing that you can summon intensity with the emotion gives you clue that intensity is yours to take if only you know how to tap into it.

Ok, how?

By using the power of focus on your thought process.  You summon your will to “focus”.  When you get emotional about something, your thought process is being “focused” on one thing.  The only one thing that you are emotional about.  Because of the mind & body relationship, the intense focus of your thought process spills over to your body and cause you to have a body reaction such as butterflies in your stomach, an ecstatic episode, etc.

Your will is your 100% commitment to a single thought process that overrides other thought processes in your head.  Even your natural mind (aka ego) do not have enough power to overcome it.

In my Grand Canyon example, I was 100% committed to survival.  I wanted to survive so much that I found a solution to fight off the weakness of my starving body by focusing only on my foot and the one step movement.  There were no other thought than my foot and the one step.  I was free of my ego and I didn’t even know it.  By the time I was at the top, I didn’t care how I look or how I appeared to others (caring about what other people think is the ego domain). I grabbed anyone who walked by me, which was something I wouldn’t normally, and asked for information.

However, in our normal trading day, we are far from fighting for physical survival.  We are only fighting for a number that resides in our banking system- money.  Most of us aren’t foolish enough to put 100% of the money into the stock market.  Most will put aside money for general living expenses and invest some into the market.  While losing the money allocated to the stock market may put a dent to your life-style, it is not going to kill you or put you on the street.  Hence, most lack the will to draw on the intensity to the thought process to improve trading success.

“Oh well, I don’t need the money right away, I can wait out the drawdown for all the stocks in the portfolio,” was the usual thought process for a lot of people.  Basically, a lot of us don’t mind being a bagholder.

Of course I mind!

Ok, let me clarify.  A lot of us prefer to take the risk of being a bagholder than to take the effort to do the right thing by cutting losses quickly.

Hey you!  What about your $AMRN and $LRAD trades?  Ain’t you a bagholder on them as well?

Oop! You got me there!

But there is one difference between my being a bagholder on $AMRN and $LRAD and most bagholders in general.  I’ve “assigned” $AMRN and $LRAD as  position trades with the express purpose of waiting out their fundamental success from the very beginning.

Yes, my position trades on $AMRN and $LRAD are underwater from my re-entry point but I’ve done my research and am willing to allocate a percentage of my portfolio for “speculation” purpose.

Meanwhile, s lot of bagholders hold ALL their stocks in their portfolio and ride the whole portfolio down along with the general market correction.  In my humble opinion, this is poor portfolio management,

Do you see the difference?

Like I said, most people only have their investment portion of their money in their portfolio; therefore, while they don’t like the pain of the drawdown of all their stocks in the portfolio, the drawdown won’t kill them.

“I can wait it out.” is the usual response.

It is your money and it is your freedom to  manage it the way your ego wants it.

But do you catch my drift here?

There is absolutely no incentive for most people to summon their will to become a better trader/investor.  Nada!

Simply because the effort is very hard.

It is very hard to focus intensely on the proper trading thought to overcome the ego desires to be right.

It is very hard to maintain the focus on the proper trading thought to overcome the ego desires to be right.

It is very hard because it will require a lot of your energy and commitment to stay focus.  Most people will prefer to engage in other forms of entertainment than to waste it on trading discipline.

For all I know, you work very hard during your day and you just don’t have the energy and time to maintain the focus for the trading effort.

The point I’m making here is that to have a shot at becoming a successful trader/investor, you have to take the extra miles to get there.  And most successful people know that.  Those who make millions or billions in the business world know that; that is why they hire the best money manager they can find to manage their money.  They know they don’t have the time to become a successful trader on their own.

But if you want to manage your own money, you have to step up.  You have to summon the will to focus on the proper trading process and do the right thing.

The intensity is there for you to take it to your trading mind.  You just need to take the effort to focus on it.

At the end of the day, the question you have to ask yourself is, “do you want to take the effort to overcome the inertia and your natural mind to become a successful trader?”

It is all up to you.

You are what you think.

Your reality is a sum total of how you think.

You can enhance your reality by bringing positive intensity to your thought process or you can let your reality stay the same by remaining in the same thought process you have now.

But even then, spending the time and hard work can only increase your probability of success.  It doesn’t guarantee success.  Your ego is a very powerful entity.  You may think you have it under control using the intensity I’ve discussed. But your ego has patience.  It can wait for your moment of weakness.  Jesse Livermore, one of the past great trader in our financial world, succumbed to his ego at the end.

Let’s not get ahead of ourselves.  Keep it simple.  Just bring enough intensity/focus so you can bypass your natural mind to cut losses quickly.  Cutting losses quickly is by far the most important and yet a simple action to perform on your way to become a successful trader.  As we all know, simple is not the same as easy.

My 2 cents.

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Where Ego Dares #3: Training

My past posts support Osho’s contention that continuous thought creates the mind.  And when you have two conflicting continuous thoughts going on in your head, then you have two minds vying for your attention.  The battle for control of the two minds is what make an ego.

Ego = continuous thought #1 (mind #1) vs continuous thought #2 (mind #2)

As in any battle, the mind that has the most training will always win.  Since we are all by-product of our society, in the absence of new training, our preprogrammed mind will always win.  It is the “I’m right” mind. I call it the natural mind because it comes out automatically without any effort on our part.

Preprogrammed mind = Natural mind = Automatic mind = I’m right (or I need to be right)

If our natural mind is in charge while we are trading, then we are “blind” to what the price action is telling us.  In other words, what our eyes see and process when looking at the chart or tape is being shouted down by our natural mind.

Your brain processes the price action from the vision of your eyes and give you the following thought, “Whoa! Price is going down like a waterfall!”

“Ignore it! It is only a temporary. Price will go back up because my fundamental analysis says so!” your natural mind shouts at you.

But I wanna cut my losses!”

“Don’t you dare! I want you to buy more! Average down here ’cause I’m right!”

And so it goes…

And here is the rub.

Most of us are not even aware of this natural mind being our obstacle in the pursue of investment success; instead most of us are looking at the wrong direction.  We think that if we have a Holy Grail trading system, our natural mind will listen and obey its signal and we will be on our merry way to being rich.

You see, what you have forgotten is that our natural mind will have no part of it.  It will denounce the so-called Holy Grail trading system the moment it spits out some losing trades.

Just by being aware of this natural mind isn’t going to make you a better trader but it is a necessary first step.  From here, we need to train another part of our mind to become a winning trader.  A mind that is trained in the art of trading to displace our natural mind during trading hours.

Let me give you a parallel example to get my point across.

Before I learned the simple four movement in martial art as I explained before, I didn’t know how to defend myself correctly.  Hence, when a punch was going for my face, my natural mind would have me reacted in fear and my body helplessly unorganized to defend such a sudden attack.

In the same token, our natural mind is not prepared to deal with a situation when our belief of the stock is being challenged by price action going the wrong way after our buy order is filled.

After getting proficient of my four martial art movements from weekly practices, my trained mind and body automatically countered an attack before the natural mind even had a chance to get involved.

In the same token, when the stock goes the wrong way after I’ve bought, my trained mind (from the many hours of researching the statistical significance of supports & resistances, candlestick chart formations, moving averages, momentum indicators) automatically executes an order to close the trade to cut losses or lock in profit before the natural mind has a chance to say no.  Trust me, your natural mind is very adept in talking you out of taking the proper action to cut losses.

“Are you sure you want to cut losses here?  You do know that price will go back up after you cut losses, right?”

The truth of the matter is that the ego is not completely wrong here.  Statistically speaking, (even if it is only 10% of the time) we WILL from time to time cut our losses quickly right at the bottom of a correction.  And it is from this statistical event that our ego persists in haunting us in order to freeze us into inaction.

By training your mind in the art of cutting losses quickly, which will require a firm commitment on your end, you will transform yourself to cut losses automatically without thinking.  Remember, our ego is simply a dominant continuous thought process; thus any thinking on our part will automatically bring forth our ego. Hence, if you can cut losses automatically without thinking, you are way ahead of most traders whose natural mind is their dominant decision maker.

Nevertheless, our natural mind is a very powerful ego and can get really feisty if you ignore it too often.  Say you cut your losses quickly in one of those statistical event of getting out at the bottom before market takes off without you, your ego can do seriously harm on your psyche by blasting you with all kind of insult and emotional guilt and pain.  After a bout of this guilt-ridden episode from your ego, you may not be so sure about cutting your losses quickly next time.

And this is why it is important that we train ourselves in calming our ego with other form of exercises such as meditation, Tai Chi, yoga, chanting, etc.

Being aware of our ego messing up our trading is not enough, you must know how to cut your losses quickly in spite of the interference from our natural mind.  To do that, you must embark on a training like an ambitious Karate martial artist who wants to earn his 10th Dan black belt or someone who want to achieve the highest level of internal martial art like the Tai Chi master in the video below:




Remember, these are just friendly demonstration of the internal martial art.  To achieve the highest level of internal martial art, it is not the exercise and practice of the physical movement like Karate but a long and patient practice of cultivating chi.  Believe it or not, if you embark on a path to cultivate chi, you are also embarking on the path to minimize the impact of your ego as well since ego can prevent your chi from developing.  Thus, practicing Tai Chi is one of the routine I like to keep up on a regular basis.

My 2 cents.

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Who’s the boss? You or your stock?

I’m sure most of you know what it is like to be a boss or an employee.

If you are not the boss, then all your effort goes to please  the boss.  And if you are the boss, all your effort goes to manage the employees.  And if you are the middle manager, then you have to please your high up and manage those below you.

Well, guess what, investing is pretty much about the same thing; but there is one big distinction.  It is YOUR money you are investing: therefore, YOU “should be” the BOSS.


I added the “should be” not for effect but to reflect how we let the employees (aka stocks) get away with not doing what they are hired to do- to make you money.

For those who are or were bosses, you know what I’m talking about.

On one extreme, if you are a tough boss, you pretty much have a strict guideline for the employees to follow.  And if your employees don’t follow those guideline, you write them up and inform them of their deviation from the guidelines.  And if they ignore your written warning, they are setting themselves up by providing you with reasonable ground for termination.  Simple at that.


On the other extreme, if you are an amiable boss who care more about the employees than your company’s mission, you may become too lenient to your employees who are not productive, not fit for the job, not being a team player, and worst of all, do not have integrity.  You become more susceptible to manipulation by the employees who are good at kissing your behind…

Before I go on, to be fair, there are excellent bosses out there who are both amiable and tough at the same time.  And these are the bosses all companies are lucky to have.

Well, I think you have a pretty good idea of where I’m going here.

It is interesting that while most of you are/were tough bosses in the business world, you become quite an amiable boss with your stocks.  Hmm…

Why do we, as an investors, tend to become the amiable boss who let our stocks get away with non-performance?  Why don’t we just fire the stocks the way Donald Trump does it in the video below?

Come on now, if your mission as a trader (aka your organization) is to make profit from swing trade/short-term trade, your job is to fire those stocks that don’t perform.  In other words, you need to be an extreme tough boss if you are a swing trader or short-term trader.  Otherwise, you are letting your employees (aka stocks) do what they please as your company’s expense (aka your portfolio’s expense).

Hence, firing nonperforming stocks = cutting losses.

Here are some thought that may help:

Scalper: stocks are like temp; if they don’t perform, replace them immediately.

Swing trader: stocks are like new employees on probation; if they don’t perform, let them go before the probation period expires.

Position trader: stocks are like project managers; if your have sufficient evidence that the project manager is not working out after a period of time, replace the project manager.

Whatever you do as a boss (investor/trader), do NOT become the boss as shown in the video below…

In other words, do not fall in love with your employees (aka stocks).

My 2 cents.

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Changing your thought pattern regarding taking losses

Let’s be real.  Taking losses when you are trading and/or investing is as normal as taking a dump.  Yes, that is right.  It is an essential part of investing and speculating.

So what is stopping most of us from taking loss when it is clear as day that our investment/trading thesis is not working?


Oh dear!

Hope, my dear friends, is a loaded word in the stock market.  So loaded that it can blow up on your face.

We should have faith!

I have heard that one before…

ok ok…  you can’t discount faith entirely since, after all, I do have faith in my AMRN, LRAD, & SZYM investments.

However, there is one thing I also hold closer to my chest more than faith, an open mind when it comes to reviewing evidence or circumstantial facts that can debunk the faith I’ve in my investments.  Even price action, when the direction is opposite to my thesis, is a kind of fact that I’ve to take into consideration.  When you think about it, if price action collapses severely in absence of news, usually that means some big holders are unloading pronto based on  information we don’t have; otherwise, any bear program will be countered by big players waiting for an opportunity to  buy cheap at support level.

Keeping an open mind when you are deep in your hope and faith is not an easy task since you are in danger of being infatuated with the stock.  In other words, you are in danger of being possessed.  Yes, you heard me.  Possessed by a strong feeling that your stock can do no wrong.  I’ll revisit this topic in another post.

So how do we get ourselves out of this stranglehold of not being able to take loss when you know you should?

By changing your thought pattern regarding taking loss.

Instead of worrying about missing the boat by getting out to take your loss, you can focus on one (or several) of the followings:

1) get out now so you can buy back cheaper (I use this thought most of the times)

2) get out now before you spill more blood (I use this thought on my $USU position)

3) get out now so you can use the cash to buy another stock that is going up (I use this from time to time)

4) get out now to take a break from the stress (I use this one recently when I had a minor panic attack)

5) get out now because you have a planned vacation to take (don’t let this losing trade ruin your holiday)

If you can shift your thought to one or several of the above instead of focusing on your fear of missing the bounce after you are out, you are already ahead of the crowd.

Since taking loss is very much part of the trading/investing process, learn to be the one to take control of the process instead of being forced on you at your maximum pain level.  In other words, take that loss when it is still small.

If you don’t mind my using this analogy, you control when you take a dump (otherwise, it will be an ugly accident!); then why not control when you take a loss when it hurts the least?  Remember, how you hurt is personal, my small hurt may be your giant hurt or vice versa; therefore, you get to set YOUR small hurt loss-taking level.

Btw, your definition of small loss can also vary depend on whether it is a scalper, a swing trade, or a position trade.

Believe me, from my experience, once you are used to taking small losses, you will love it and will not think twice taking them as time passes.  Yes, even in the face of seeing some bounce without you on board, you won’t be faded.  You know why?  That is because you will also have witnessed multiple times how taking small losses have saved you from much bigger losses, probably more times than you see price takes off without you after you’ve sold.

My witness of the $DCTH and $USU continuing downtrend last week after I’ve taken my losses proves my point.

My 2 cents.

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The evolution of a dime store blogger

Ok, in my early stage of blogging, I was as ignorant as a clueless ant walking blindly in circle without a sense of the surrounding social media phenomenon.  Like a baby-face farm boy who was oblivious to the metropolitan world of communication, I logged in my trades under the comment area of my blog post while others are sharing their trades and quick thoughts on the super-highway of twitter.

“If you’re not using Twitter to promote your work, you’re a f*** idiot” The Fly proclaimed in one of his post.

Holy Jubilee! Time to get off my lazy ass and learn to ride the twitter highway.

Slowly and in baby step, I dipped my toe in and began to walk on the twitter highway.

And a lot of walking I did; so much so that I ignored my blog for the easy twitter updates.

Talking about walking, if The Fly has thought of “Walk the Dog” while reviewing my blog “followingpriceaction.com”, something is not right.  I suspected it must be the word “following”.  Yes, it must be it; dogs always follow their masters. (Hint: Price Action is our master in the world of trading.) Originally, I chose the blog name to remind myself to follow the price action; but then, thanks to The Fly’s reaction, a reminder doesn’t necessary make a good blog title.

In some way, I’m glad of The Fly’s brutal honesty, Followingpriceaction does sound limited in scope.  So, I enlisted the help of my family members and came up with one we agreed on:


I like it.

Think about it, it doesn’t matter what technical tools or fundamental stories I am using to back up my decision on a trade, it is essentially my 2 cents in the end.  All I am doing is to build a supporting structure using chart patterns, momentum indicators, fundamental story, etc. to give me confidence to execute a trading decision.

An interpretation of a chart is nothing more than my 2 cents in attempting to forecast the short or long term direction.

My belief in the fundamental story of a stock is nothing more than my 2 cents in attempting to form a vision of the future.

Nothing is ever guaranteed in life and everything has its own risk; but it all starts with our taking a position or direction based on our 2 cents.

History has shown that while it is in our nature to take risk, it can be catastrophic to take risk for granted.  Our 2 cents can only takes us as far as we are correct (aka being right); but to ignore the risk (aka the cost of being wrong) will be foolhardy.  This is why we must always take precaution to cut our losses when our 2 cents turned out to be worthless (aka being wrong).

Although followingpriceaction.com started off as a reminder for myself, tradingmytwocents.com also has a reminder baked in- because it is ONLY my 2 cents, there is no need to prove how right I am.  If I’m wrong, I can throw my two cents away.  In other words, don’t pay top dollars to keep your two cents and learn to cut your losses quickly folk!

TradingMyTwoCents.com is my next step in transforming myself as a blogger.

Let’s see where it goes.

I’m going to try again for the ibankcoin interim blogger contest if it is still on.  If I’m ready, I’ll win a spot; if I’m not ready, then I’m simply not ready.  After all, it is only my 2 cents anyway.

Thanks for listening.

ps. I do not know where to go to change my twitter username in this blog; however, I’ve send an email to [email protected] to ask them to change my twitter username from @followtheprice to @tradingmy2cents.


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Market gives and market takes…

Hey, I made money on $MJNA, Yay!!! (market gives)

Ouch! I lost money on $ETRM.  (market takes)

And that is the way the market works!

The trick is to hold on to the gain the market gives you without letting the market takes back too much.  To do that, we need to wrestle with our greed.  Yes, you heard me.  By wrestling with greed, you are actually taking action to prevent greed from dominating your trading decision.  If you don’t wrestle with your greed, then you are allowing greed to dictate your trading decision which oftentimes will decimate your portfolio.

There were moments in the last two days when I wanted to add to my $ETRM position; but a voice in the back of my head said, “Hey, I think you’ve enough.  Don’t let your greed control you.  This trade is a gambling bet waiting on release of data.  If you want to gamble big, go to Vegas; at least, they comp you with free room…

Thanks goodness I backed off.  The fact that I backed off meant I wrestled with greed.

If $ETRM still trades at the after hour price of $1.44; my loss here almost offsets my gain in $MJNA- market gives, market takes.

In the overall scheme of thing, I consider myself lucky.

Trade well!


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Conviction- which side are you on? Guilty as charged or The state of being convinced?

Previously, in my post on the courage of conviction I reminded everyone why the word courage was needed in the face of “your” conviction of a certain event; today, I like to talk about the degree of conviction we all have on the stocks we own.

Your conviction is a very personal matter and only you hold the key to what you want to believe is “true”; your version of “truth” that is, not the 100% fact of life happened to to your face truth. We all have our own belief of what is true based on what we know or what we “think” we know about everything and anything in our life.  As a result, we all have a tendency to step on other people toes because our version of truth doesn’t match with others.

Nevertheless, in trading, our version of truth is tested at a new dimension because our dollar is on the line.  Not only do we need to extend what we believe is the truth into the future by extrapolating what we think will happen, we are making a bet based on our conviction.  And as we all know, once you tap into the realm of the future, you are automatically tapped into the realm of uncertainty as well. Hence, courage is needed for your conviction of what you believe is the “truth” because your dollar is now at risk.

Now that I’ve gotten the introductory out of the way, let’s talk about what it takes to have conviction.


You know what I mean!  Oh yeah! You DO!

If I’ve ten stocks in my portfolio, I can only muster enough mental energy to have conviction for about 4-5 of the stocks to be considered as position trades.  The rest has to be swing trade because I can’t have 100% of my mental energy supporting the conviction for all ten stocks.  If I even attempt to do so, I will certainly going into tilt very easily (aka short fuse).  And the moment you are tilted (or blow your fuse), you lose your bearing on yourself and everything you know about exercising discipline in trading the market will go out the window.  All of a sudden, you are trading like a degenerated gambler who is secretly “hoping and wishing” the ten stocks you are holding will go up the way you expect it to do even though most of the ten stocks you are holding are tanking in front of you.

The point I’m trying to make is that you must select the few stocks you want to have conviction carefully and systematically.  In other words, you must do your due diligence (DD) to convince yourself that this is the right horse for you to believe in.  One that you can handle the drawdown because you know the prospect of a brighter future is still ahead of you.  If you don’t do your own DD and merely take on other people suggestion, then your conviction may not be strong enough to hold water.

Cases in point:

1) RIMM: Did my DD; plenty of conviction.  Took profit and jumping back in when momentum continued in the direction I was convinced it would. I had quite a good ride with RIMM since November of last year.

2) PACB: Took the trade due to other people alert of a possible breakout. No DD; therefore no conviction. Took profit but did not have the conviction to jump back in.  Missed a huge rally afterward.

Lesson #1: if you didn’t do your DD and therefore had no conviction; it is OK to miss the rally afterward since you are only going to deserve what you get bases on what you put in. You can kick yourself on the behind but don’t punch yourself in the stomach.

Lesson #2: select your stock you like and spend some time to do DD on it.  It can even be stocks you’ve picked up from others.  As long as you have done your own DD on it, you will have built up conviction to trade the stock more productively.

Lesson#3: there is only so much mental energy we each have; so don’t beat yourself up for missing a runner here and there.  Just stay focus on the stocks you have chosen to invest your time to build your conviction on.

In conclusion, let me ask you this, “are you guilty of beating yourself up for watching a trade takes off without you because you did not have the fortitude to hold on to your trade?”

If you answer yes, then do yourself a favor by telling yourself to do some more DD next time to build up some conviction first.  Meanwhile, give yourself a break because you are only getting what you put in.

Trade well!

Oh, btw, I’m only speaking from the perspective of a swing trader/position trader.  There are many out there who do plenty of DD with enough conviction to invest 100% of their investment dollar into their position trades without any swing trade being involved.

Oh, btw #2, even though I talk about position trade and the conviction to withstand drawdown, exercising trading discipline such as setting maximum loss trigger point still applies.


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